Sellers Concession Towards Closing Costs

What Is A Sellers Concession?

On every home purchase, no matter what state the home purchase is, there are closing costs associated with the home purchase transaction. Home buyers need to put down a down payment plus they will have closing costs associated with the purchase of the home. All mortgage loan programs allow a home seller to offer a home buyer a sellers concession towards closing costs. The home buyer can then use the sellers concessions to offset their closing costs where in many instances, the can cover all of the home purchase closing costs and all they need to worry about is coming up with the down payment.

What Does Closing Costs On Home Purchase Cover?

Closing costs on a home purchase transaction covers all costs and fees associated with the origination of the mortgage loan and all costs and fees associated with the purchase of the home. Examples of closing costs includes origination fees, credit reporting fees, underwriting fees, title charges and fees, attorneys fees, recording fees, homeowners insurance premium, pre-paids ( 2 months tax and insurance escrows ), appraisal fees, home inspection fees, and any other fees and costs in the purchase of the home.

What Is The Maximum Sellers Concession A Buyer Can Receive?

The maximum sellers concession a home buyer is allowed to accept depends on the mortgage loan program. FHA allows a maximum of 6% sellers concession, VA allows a maximum of 4% sellers concession, Conventional Loan programs allows a maximum of 3% sellers concession on owner occupant and second homes and 2% on investment properties. Home buyers can use all of the sellers concessions for closing costs only. Home buyers cannot use sellers concessions towards the down payment of the home. Any surplus of sellers concessions needs to go back to the home seller and the seller cannot give a home buyer a kickback of the left over sellers concessions in any way or form. It is best for the home buyer and mortgage loan originator to make sure that the sellers concessions is not wasted and that any surplus of the sellers concessions will be used such as by buying down the rate for a better rate. Home buyers can pay points to buy down their rates and on cases of sellers concessions overages, that is how mortgage lenders use the surplus sellers concession is to buy down the rate by buying points.

Why Would Sellers Give Sellers Concessions?

Sellers concessions is very common and most home buyers do get sellers concessions by home sellers. Home sellers are not giving out free money for the sake of helping a home buyer. Sellers concessions normally helps a home buyer qualify to purchase home where otherwise they would not qualify. Most home buyers need to scrap by to get a down payment of 3.5% for FHA Loans or 3% to 5% down payment for Conventional Loans and closing costs can add to another 3% or more of the purchase price. Lets take a case scenario on how home sellers give sellers concessions towards a home buyers closing costs: Say a home seller wants to net $100,000 on a home purchase and wants to help the home buyer with closing costs of $4,000 on a FHA Loan. The home seller and home buyer will negotiate a purchase contract for $104,000 with a $4,000 sellers concession towards the home buyers closing costs. The home buyer will have $4,000 to cover his or her home closing costs and the home seller will net his $100,000 price.

Fixing Credit To Qualify For Home Loan

Tips In Fixing Credit To Qualify For Home Loan

It is highly recommended for home buyers or homeowners thinking of refinancing in checking their credit and credit reports for any errors they may have on their credit reports and see if they can maximize their credit scores so they can qualify for a mortgage loan and if they do qualify for a home loan, have the best credit scores possible to get the best mortgage rates. Mortgage rates are determined by the mortgage loan borrower’s credit scores and the higher the borrower’s credit scores are, the lower the mortgage rates the borrower will have.

Quick Tips In Improving Your Credit Scores

There are some quick tips where you can boost your credit scores. If you have maxed out credit cards, the chances are that you will have lower credit scores. Paying down your credit card balances will definitely boost your credit scores. The higher your available credit balance is, the more positive impact it will have on your credit scores. Having no active credit trade lines will have a negative impact on your credit scores. If you have no active credit trade lines, you should get three to five secured credit cards with at least $500 credit limits. Each one of those secured credit cards should boost your credit scores by 10 to 20 FICO points and as those secured credit cards ages, it will have more of a positive impact on your overall credit profile. As your secured credit card ages and you develop a perfect payment history with the secured credit card company, the secured credit card company will eventually get you a credit limit increase without having to put any more additional deposit. Once you have a timely payment history with your secured credit cards and your credit scores are at least 700 FICO, you will be able to qualify for traditional unsecured credit cards. Do not apply for unsecured credit cards if your credit scores are below 700 FICO.

Credit Repair Prior To Applying For Mortgage

If you are planning in enrolling in a credit repair program, make sure you do it well in advance of applying for a mortgage loan. The main reason is because credit repair involves disputing negative credit items to the three credit reporting agencies and there are strict mortgage lending guidelines when it comes with credit disputes during mortgage process . You cannot have any credit disputes on non-medical collection accounts with credit balances that totals $1,000 or more ( total of unpaid collection accounts ) to qualify for a FHA Loan. You need to get the credit disputes retracted in order for the mortgage process to proceed. You can qualify for FHA Loans with unpaid collection balances and charge offs. Charge off accounts and medical collection accounts are totally exempt and do not count under FHA federal mortgage lending guidelines. However, if you have more than $2,000 of unpaid collection account balances of $2,000 or more on non-medical collection accounts, then 5% of the unpaid collection balance will be used to calculate the mortgage loan borrower’s debt to income ratios. Cases where the mortgage loan borrower has a large collection account balance like $10,000, then 5% of the $10,000 unpaid collection balance or $500 will be used as the mortgage loan borrower’s monthly debt and will be used to calculate their debt to income ratios even though they do not have to pay the $500 per month. For those mortgage loan applicants with large collection account balances and prior bad credit, it is highly recommended that they start a credit repair program to see if they can have their collection accounts and negative credit items deleted off their credit report. However, credit repair does take time and home buyers should start credit repair program well ahead of time of them actually applying for a mortgage.

What Is A Short Sale?

What Is A Short Sale And How Does It Work?

A short sale is when a mortgage lender approves the sale of a homeowner’s home for a value less than the amount the homeowner owes on their mortgage loan balance. After the 2008 Real Estate and Mortgage Meltdown, real estate values have collapsed where many homeowners who had equity in their homes were left with home mortgages that were higher than the amount they owed on their mortgage loans. Since the economic and the real estate meltdown, many homeowners have seen their home values go back up and many, especially in California, Florida, Illinois, Texas, and other parts of the country. However, there are still homeowners who still have mortgage loan balances that is higher than the balance of their homes. In order to sell their homes, they need to come up with the difference on what they owe from the sales price of their home. With a short sale, the homeowner has the mortgage lender’s blessing to sell their home at the current market value and will often forgive the debt that they owe.

Short Sale Process

If a homeowner is going through financial hardship and they owe more on their mortgage loan balance than the value of their homes, their mortgage lender may accept a short sale. Getting approved for a short sale is a process. Mortgage lenders will want to see financials of the homeowner and the reason why their mortgage payments is a hardship. After carefully reviewing the mortgage loan borrower’s financials and credit, the mortgage lender can approve a short sale. The homeowner can choose a realtor of their choice. The mortgage lender will do their own due diligence on pricing the home and will research recently sold properties in the area. Once a listing price is decided, the homeowner can have their real estate agent list the property. Once a potential home buyer submits a real estate purchase offer, the homeowner has no say so whether or not to accept the real estate purchase offer. The real estate purchase offer needs to be submitted to the mortgage lender who holds the note. Most mortgage lenders take their sweet time in reviewing the real estate purchase offer and sometimes it may take weeks or months before getting back to the home buyer with a counter offer. Short sales are a long process and take much longer to close than traditional home sales because banks and mortgage lenders normally take long.

Can A Homeowners Who Short Sales Qualify For Another Home Loan?

A short sale will definitely affect the credit and credit scores of the homeowner. However, homeowners with a prior short sale can definitely qualify for another home loan after short sale. If the homeowner has been timely with their mortgage payments and all other monthly debt payments up to the date of their short sale for the past 12 months, there is no waiting period to qualify for mortgage after short sale. Unfortunately, most mortgage lenders want the homeowner to skip at least one months mortgage payments for the short sale to be effective and this 30 day late payment on their mortgage payments will trigger a three year waiting period after short sale for FHA Loans and a four year waiting period after short sale for Conventional Loans.

Credit After Short Sale

A short sale will most likely trigger a 100 plus point drop in the homeowner’s credit scores. However, the credit scores will eventually go back up as the short sale ages. Homeowners who had short sale should start re-establishing their credit by adding positive credit and being timely with all of their monthly debt payments. Secured credit cards are the best tools in re-establishing credit after short sale and each secured credit card can boost a consumer’s credit scores by 30 or more points and expedite the credit re-establishing process. Never be late on any monthly debt payments after short sale. Most mortgage lenders will disqualify mortgage loan borrowers who had late payments after short sale, bankruptcy, and foreclosure. One 30 day late payment after short sale can disqualify a mortgage loan borrower from qualifying for a mortgage loan for at least seven years. A short sale will be on a consumer’s credit report for 7 years.

2 To 4 Unit Properties

Purchasing 2 To 4 Unit Properties

First time home buyers or home buyers who eventually want to become real estate investors can now purchase 2 to 4 unit properties as an owner occupied residence with a FHA Loan with 3.5% down payment. 2 to 4 unit properties can be great investments for home buyers intending on occupying one of the units and renting the other units to offset the monthly housing expenses. FHA does require that mortgage loan borrowers of 2 to 4 unit properties occupy one of the units for at least one year. After occupying one of the units for at least one year, the 2 to 4 unit property owner can then qualify for another owner occupied home and rent out the unit they are exiting.

FHA Loans And 2 To 4 Unit Properties

To qualify for 2 to 4 unit properties with a FHA Loan, the mortgage loan borrower needs at least a 580 FICO credit score. There is a 3.5% down payment requirement for mortgage loan borrowers with at least a 580 FICO credit score. Borrowers with credit scores under 580 FICO credit scores, a 10% down payment is required. Mortgage rates on 2 to 4 unit properties are higher than mortgage rates of single family homes because mortgage lenders view multi unit buildings as higher risk. With higher risk means higher mortgage rates. To get the best mortgage rates on 2 to 4 unit properties, one should have credit scores of at least 640 FICO. Mortgage lenders will require three months of reserves for three and four unit properties. Reserves are one month of principal, interest, taxes, and insurance or PITI. Many mortgage lenders require two years landlord experience from the mortgage loan borrower to be able to count potential rental income as part of their mortgage lender overlay. If a mortgage lender requests two years landlord experience in order for them to count potential rental income, the seek another mortgage lender where they have no mortgage lender overlays .

Using Potential Rental Income To Qualify

FHA allows up to 85% of the potential market rent income to qualify for the mortgage loan borrower’s income calculations. However, many FHA mortgage lenders have mortgage lender overlays where if the mortgage loan borrower does not have two years landlord experience, then the potential rental income cannot be used to qualify. If you are told that you do not qualify due to mortgage lender overlays because you do not have two years landlord experience, contact Gustan Cho Associates at 262-716-8151 or email Gustan Cho at GustanCho@Outlook.com.

Can I Qualify For 2 To 4 Unit Properties With Conventional Loans?

You can qualify for 2 to 4 unit properties with conventional loans, however, owner occupied 2 to 4 unit properties require 15% down payment with conventional loans. You can also use potential rental income but the potential rental income you can use is 75% of the potential market rent that is stated on the home appraisal.

What Is Debt To Income Ratio?

Debt To Income Ratio

Debt To Income Ratio is the sum of the minimum month debt payments a loan applicant has divided by the loan applicant’s monthly gross income. Mortgage lenders consider debt to income ratios one of the most important factors when qualifying for a mortgage loan. There are different debt to income ratio requirement depending on the mortgage loan program. For example, the maximum debt to income ratio permitted for FHA Loans is 56.9% if the mortgage loan applicant credit scores of at least 620 FICO or higher. If the mortgage loan borrower has credit scores of under 620 FICO credit scores, then the maximum debt to income ratios allowed is 43% debt to income ratio. For conventional loans, the maximum debt to income ratios allowed is 45% DTI. For jumbo loans, the maximum debt to income ratios allowed is normally 40% DTI.

What Is Front End Debt To Income Ratio?

The front end debt to income ratio is the monthly principal, interest, taxes, and insurance payments divided by the mortgage loan borrower’s gross monthly income. The front end debt to income ratios is also called the housing ratio because mortgage lenders consider the housing ratio or proposed housing ratios very important to see whether or not the mortgage loan borrower can afford the new proposed mortgage payment. FHA Loans has a front end debt to income ratio cap of 46.9% DTI for FHA mortgage loan borrowers with credit scores of 620 FICO or higher. For FHA mortgage loan borrowers with credit scores of under 620 FICO credit scores, the front end debt to income ratios gets reduced to 31% DTI.

What Is The Back End Debt To Income Ratio?

The back end debt to income ratio is the front end debt to income ratio plus all other minimum monthly debt obligations such as minimum credit card payments, auto loan payments, student loans, installment loans, and any other monthly debts such as child support payments, alimony payments, payment agreements divided by the mortgage loan borrower’s gross monthly income.

Solution To High Debt To Income Ratio Borrowers

Mortgage loan borrowers with high debt to income ratios often need to go with FHA Loans. FHA Loans are much more lenient with high debt to income ratios than conventional loans. Maximum debt to income ratios for conventional loan programs is capped at 45% where FHA Loans have debt to income ratio caps at 56.9%. FHA Loans also allow for non-occupant co-borrowers for FHA mortgage loan borrowers with high debt to income ratios. More than one non-occupant co-borrowers are permitted with FHA Loans. With conventional loans, Fannie Mae does not allow non-occupant co-borrowers, however, Freddie Mac does allow non-occupant co-borrowers. Again, both Fannie Mae and Freddie Mac have debt to income ratio caps of 45% DTI.

Welcome To One Solution Real Estate

One Solution Real Estate

One Solution Real Estate is a mega website about real estate, investing, mortgage lending, creative financing, residential loans, hard money lending, credit and credit solutions, and specialty mortgage loan programs. One Solution Real Estate mission to provide information and resources to real estate agents, mortgage loan originators, mortgage lenders, real estate investors, attorneys, title agents, insurance agents, home buyers, home sellers, and consumers through its sister and affiliate websites as well as its daily blog articles by real estate and finance professionals. Guest writers will include professional realtors, licensed veteran mortgage loan officers ( both residential and commercial ), real estate attorneys, veteran title officers, contractors ( on do it yourself construction projects ), real estate investors, and other members of the real estate community.

Comments And Feedback

Viewers of One Solution Real Estate should feel free to comment on every blog. Participation and comments by our viewers are appreciated. Not just asking questions but also if you feel that a topic will benefit our readers, it will be greatly appreciated if you would share it. The real estate market has gone through many changes in recent years, especially after the 2008 Real Estate and Mortgage Meltdown. Millions of real estate investors have lost millions. Many with high net worth lost everything from the real estate market crash. Besides losing everything they have worked so hard for, many had ruined their credit because the Great Recession forced them into bankruptcy and foreclosure. Millions of real estate investors have lost not just their investment properties but also lost their homes they have raised their families in and had to go back to renting. Many with solid jobs and careers had to settle for minimum wage jobs or jobs that they were overqualified for just to make ends meet. Some who had tens of thousands of debts and could not afford the funds to file for bankruptcy and had to endure the hard core calls by bill collectors year after year. Never in history of the United States and the World has the economy been so bad and so many families been affected. Prior to the 2008 Real Estate and Mortgage Meltdown, bankruptcy was hardly a common word. After the 2008 Real Estate and Mortgage Meltdown, the term bankruptcy was a household term. Bankruptcy attorneys had so much business that some bankruptcy attorneys had to turn away bankruptcy clients because they were so busy. Many real estate attorneys changed fields and became bankruptcy attorneys and their business were booming. All viewers should join our real estate and mortgage forum which is part of Gustan Cho Associates . Our goal is to develop a large online community consisting of real estate industry professionals and consumers where we can all participate on a daily basis and help consumers who have all types of questions about real estate. Real estate investment opportunities is back and will continue to grow. One Solution Real Estate will be the number one premier real estate information and go to website for real estate investors to go to for resources, especially specialty financing program.

Real Estate Market Is Recovering

The real estate market has recovered and is continuing to recover. Some areas of the United States like California and Florida has doubled in value. Homeowners who had their mortgage loan balances higher than the value of their homes are now seeing their home values recovered and can now sell their homes. Hundreds of thousands of real estate agents and mortgage loan originators who left the business due to the 2008 Real Estate and Mortgage Meltdown have come back to the real estate and mortgage industry and are doing better than ever. Real estate investors and real estate developers who have gone out of business are now back in business and are doing better than ever. The mission and goal of www.onesolutionrealestate.com is to offer as many resources as possible for real estate investors, real estate developers, real estate agents, mortgage loan officers, mortgage lenders, and consumers access and resources to further their real estate business and careers. One Solution Real Estate will be consistently be updating specialty mortgage loan programs, changes in lending guidelines, hard money lenders, top producing real estate agents, and mortgage loan officers that offer unique and creative financing programs.

Credit And Lending

Credit and income are the two most important factors in obtaining a mortgage loan. Whether you are looking for a residential loan, commercial loan, business loan, hard money loan, or specialty loan, credit is one of the most important factor in not just obtaining a loan but credit also determines your mortgage rates and terms of the loan. Through our sister credit information site, Credit Fix Advisors , credit repair tips will be offered as well as reasonable credit repair services.  Lenders do understand that many have had prior bad credit due to the Great Recession but as long as the borrower has re-established credit, lenders will gladly approve financing. Prior bad credit does not affect mortgage rates or interest rates. Credit scores is the factor that determines what your mortgage rates and/or interest rates will be.

 

How Solid Is The Pre-Approval Letter?

Importance Of Pre-Approval Letter

Realtors count on a solid pre-approval letter from home buyers. Home sellers normally will not show a property and more importantly, will not accept a real estate purchase offer from a home buyer without a pre-approval letter. A shrewd real estate agent will question the pre-approval letter that they were presented with and will often contact the mortgage lender who issued the pre-approval letter to see how solid the pre-approval letter is and to see whether the mortgage loan originator has thoroughly reviewed the mortgage loan borrower’s tax returns, W-2s, and whether the mortgage loan originator has submitted the mortgage loan applicant’s file through Fannie Mae’s Automated Underwriting System.

Do All Mortgage Loan Originators Qualify Borrowers Same Way?

The pre-approval stage is the most important part of the mortgage loan process. Many mortgage loan officers just issue pre-approvals by running the credit report and seeing whether the mortgage borrower meets the minimum credit scores. They do not review the credit report to see whether they have had any late payments in the past 12 months, see if they have any credit disputes, check for unsatisfied judgments, check to see for any tax liens, or check for any other credit issues that may come up during the mortgage approval process. A sloppy pre-approval is the main reason why mortgage loans get denied. Other more diligent mortgage loan officers will look and thoroughly review the mortgage applicant’s tax returns to see if they have unreimbursed expenses or any other debt obligations such as alimony payments, or child support payments.

Prior Foreclosure

Most mortgage loan officers do not make a mistake with prior bankruptcies from mortgage applicant’s. There is a two year mandatory waiting period after a Chapter 7 Bankruptcy to qualify for a FHA Loan from the date of the Bankruptcy discharged date with re-established credit. There is a four year waiting period after a Chapter 7 Bankruptcy discharged date to qualify for a conventional loan with re-established credit. However, with foreclosures, it is a different matter. There is a three year waiting period to qualify for a FHA Loan after the recorded date of either a foreclosure and/or deed in lieu of foreclosure. The three year waiting period does not start until the date of the sheriff’s sale or the date when the deed of the property was transferred out of the homeowner’s name into the name of the mortgage lender or the name of the new homeowner. It does not matter when the homeowner surrendered the keys to the mortgage lender. Sometimes, years go by where the deed of the property has not been transferred out of the name of the homeowner and the homeowner thought that the foreclosure process was done and that they have met the mandatory waiting period. With conventional loans, there is a seven year mandatory waiting period to qualify for a conventional loan after the recorded date of the foreclosure or the date of the sheriff’s sale. There is a four year mandatory waiting period after the date of the short sale to qualify for a conventional loan. There is a four year mandatory waiting period to qualify for a conventional loan after the recorded date of a deed in lieu of foreclosure to qualify for a conventional loan.

FHA Loans

What Are FHA Loans?

FHA Loans are the most popular mortgage loan programs in the United States today. The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development, HUD. FHA is not a mortgage lender. FHA’s mission and objective is to insure FHA Loans against default from FHA mortgage loan borrowers which are originated by banks and mortgage companies who are FHA approved and where all their mortgage loans meet FHA mortgage lending guidelines.  As long as the FHA approved banks and mortgage bankers make sure that all of their FHA mortgage loan borrowers meet minimum FHA mortgage lending guidelines, FHA will insure the FHA approved banks and mortgage lenders in the event if the mortgage loan borrower defaults on their FHA Loans.

Minimum Requirements On FHA Loans

FHA Loan Requirements include the following:

  1. Minimum 580 FICO credit scores for 3.5% home purchase FHA Loans.
  2. If credit scores are under 580 FICO, then 10% down payment is required.
  3. If credit scores are under 620 FICO, then maximum debt to income ratio is capped at 43% debt to income ratio.
  4. If credit scores are 620 FICO or higher, then the maximum back end debt to income ratios are capped at 56.9% and maximum front end debt to income ratios are capped at 46.9%.
  5. FHA does not count medical collection accounts and charged off collection accounts and are ignored. Each individual mortgage lender can have mortgage lender overlays on medical collection accounts and charged off accounts.
  6. Mortgage loan borrowers can qualify for FHA Loans with unpaid non-medical collection accounts without having to pay it off or without a written payment agreement. However, if the unpaid collection balance is great than $2,000, then 5% of the unpaid balance will be used as a monthly debt payment obligation and be used to calculate the mortgage loan borrowers debt to income ratios.
  7. FHA Loan Programs allow for non-occupant co-borrowers to be added on the mortgage loan in order to qualify.
  8. Borrowers with prior bankruptcy and foreclosure can qualify for FHA Loan Programs as long as they have waited two years after a Chapter 7 Bankruptcy discharge and three years after the recorded date of foreclosure and/or recorded date of deed in lieu of foreclosure and three year waiting period after the date of a short sale.
  9. FHA Loan Borrowers can get their down payment gifted by a family member and/or relative with a gift letter which states that the home buyer is not going to pay the gift funds back and that the gift funds is not a loan but merely a gift. 100% gift funds are acceptable.

Gustan Cho Associates

If you are shopping for a mortgage lender with no lender overlays, contact Gustan Cho Associates . Gustan Cho and his associates are experts in FHA Loans, VA Loans, USDA Loans, Conventional Loans, Jumbo Loans, and Portfolio Loans. Gustan Cho Associates are also commercial loan specialists and hard money lenders. Gustan Cho Associates is also associated with Doctors Funding Group, a direct lender where it offers unsecured financing to healthcare professionals such as medical doctors, dentists, veterinarians, pharmacists, physical therapists, and chiropractors. If you need a no mortgage lender overlay lender, contact Gustan Cho directly at 262-716-8151 or email Gustan Cho Associates at GustanCho@Outlook.com.